Chinks open in Coal India's near monopoly

Authentic news,No fake news.

Coal India and Singareni Collieries, both government-owned, together rule the market for coal; the former has 80 per cent of it.

Earlier this month, Union coal secretary Sushil Kumar said the coming year would mark the return of private commercial mining of coal, after 40 years. The government will be allocating four blocks for private commercial mining. 

However, the government-owned behemoth has 413 mines, producing 530 million tonnes (mt) a year. According to senior Coal India officials, their very size gives an edge over any other entrant. “No company can match our production. Thus, we will continue to retain market leadership position and prices will also depend on our reaction to market conditions,” said a top executive.

At the best, he says, private players will be able to produce only four to five per cent of their output. Recently, keeping with global trends, Coal India raised its coking coal prices by 20 per cent, and revised the steel and direct feed grades at par with import prices. Analysts expect private companies to follow Coal India’s pricing trend in the initial years of operation.

“For at least three-four years after private companies start selling, Coal India prices will be the benchmark,” said an analyst with Motilal Oswal.

Another senior Coal India official said although the mining segment was being opened, private companies would be more interested in short-term supply agreements. 

This allows greater flexibility in reacting to global trends and to earn higher margins, while Coal India will continue to focus on long-term supply agreements. The latter warrant higher and steady offtake. 

However, it is in the auctions where Coal India will have to seriously compete against private companies and a price war is likely here.